The director of the Vatican bank and his deputy have resigned over a financial scandal that has already seen one monsignor jailed.

In a statement, the Vatican said Paolo Cipriani and his deputy Massimo Tulli stepped down "in the best interest of the institute and the Holy See".

Mr Cipriani, along with the bank's then-president, was placed under investigation by Rome prosecutors in 2010 for alleged violations of Italy's anti-money laundering rules after financial police seized €23m (£19.7m) from a Vatican account at a Rome bank.

Neither has been charged and the money was eventually ordered to be released.

Ernst von Freyberg will serve as interim director of the IOR

But the bank, known as the Institute for Religious Works (IOR), has remained under the spotlight amid concerns it has been used as an offshore tax haven.

Last week, a Vatican accountant was arrested as part of the broadening investigation into IOR.

Monsignor Nunzio Scarano is accused of corruption and slander in connection with a plot to smuggle €20m (£17.1m) into Italy from Switzerland without reporting it to customs officials.

Scarano, dubbed "Don 500" by the Italian media because of his alleged favourite euro banknote, admitted under questioning on Monday that his behaviour was wrong, but insisted that he was only trying to help out friends.

According to wiretapped phone conversations, Scarano was in regular contact with both Mr Cipriani and Mr Tulli to get the required bank approval to move large amounts of cash into and out of his IOR accounts.